Money for a federal loan program ran out on Thursday, but many are hopeful for additional funding

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SAN FRANCISCO, CALIFORNIA – MARCH 24: A growing number of closed businesses in San Francisco’s Mission District are boarding up their windows with plywood as the cornonavirus shutdown continues, Tuesday, March 24, 2020. (Karl Mondon/Bay Area News Group)

William Keller looks out the window of his Oakland community bank and sees the empty streets and shuttered businesses, victims of a shelter in place order designed to slow the spread of coronavirus.

There’s the restaurant whose owner is a customer of Keller’s Community Bank of the Bay, and is among thousands of small business owners in the Bay Area who were considering applying for the low-interest Paycheck Protection Plan loans for companies with 500 or fewer employees that are part of the federal stimulus package.

“When that individual came in and looked for this particular loan, it meant something very different than getting an application on the internet,” Keller, president and CEO of the bank, said. “This is when you need someone to see you as an individual so you get prioritized.”

The chaotic rollout of the Paycheck Protection Plan, which by Thursday exhausted the $349 billion initially approved by Congress, left small businesses worried and frustrated, locked out of applying at some large lenders, like San Francisco-based Wells Fargo, who either maxed out on loans or only accepted applications from existing customers. Large banks are likely prioritizing bigger companies with hundreds of employees, experts say, pushing those with just a dozen workers to the back of the line. Banks and credit unions are hopeful Congress will soon approve additional funds for the Small Business Administration program, which had approved more than 1 million loans as early as Monday.

Before the money ran out, credit unions and community banks stepped into the gap left by large banks, saying their neighborhood connections and willingness to loan to the smallest of businesses make them perfect for this moment. For some, the coronavirus crisis has echoes of the 2008 financial meltdown when big banks pulled back and smaller financial institutions kept lending.

“We have no choice, there is no other business line. We invest in this community good times and bad,” Keller said, adding that demand is so high that Community Bank has moved 80 percent of its staff to the loan program. “I know those streets will be full again someday and we’ll be here.”

Keller estimates he was able to get approval for about 175 of the 400 applications they got, many of them for loans of less than $100,000. That’s less than half the average $239,000 PPP loan. But some businesses ended up deciding to not even apply, including the restaurant near his office.

Bianca Blomquist, California policy and engagement manager for Small Business Majority, a national nonprofit advocacy group based in the Bay Area, said she’s been talking to Northern California members of her organization who have been trying to access the federal loans.

“The only folks that I have on my list, that I’ve heard that are processing these applications, are community banks and credit unions,” Blomquist said. “It’s insane.”

Ryan Donovan, chief advocacy officer at the Credit Union National Association, says his members were eager to participate in the Paycheck Protection Program because helpingneighborhood businesses is part of their mission. Unlike banks, credit unions are nonprofits owned by their members, but they make up less than 8 percent of the financial services sector so they can’t help everyone. Wells Fargo has $1.9 trillion in assets. Only a dozen credit unions in the country have more than $10 billion in assets, he said.

For that reason, credit unions can’t finance a bailout of the airline industry, he said. But “they can help out the airline caterer, they can help the folks that have got a store at the airport.”

One of the challenges of the federal loan program, according to Keller, is that success has depended on speed — how quickly a company can fill out an application for a customer.

“We have many, many smaller clients and the system is just simply set up where it takes just as long to process a $30,000 application as a $10 million application,” he said. For large banks, it makes more sense to focus on the big $10 million applications, and put smaller businesses at the back of the line. One of Keller’s clients got approved for a loan of just $6,500, which he said larger banks might’ve rejected.

With millions of businesses closed, the demand for federal loans has grown so big that online lendersalso entered the market. Payment platforms Paypal and Square Capital, as well as Intuit, which owns QuickBooks Capital and TurboTax, have been approved to issue PPP loans.

“I lived through 2008-2009 thinking that was horrific,” said Diana Dyska, CEO of the California Credit Union League. “This, by far, is 1,000-fold more complicated.”

But credit unions are going in withstrong financial footing, and started taking steps to protect their customers early. California credit unions have already issued about 10,300 mortgage payment extensions and 179,500 payment extensions on consumer loans, according to Dyska. She hopes that those customers and small businesses will remember that once the crisis is over and they’re deciding who to bank with.

It’s happened before. In the decade after the Great Recession, Donovan said, credit unions membership nationally grew more than 30 percent, to 120 million customers.

As Congress debates additional money for PPP loans, organizations representing credit unions and even Majority Speaker Nancy Pelosi, D-San Francisco, have called for a share of the new money to be set aside specifically for borrowers applying through credit unions and community banks. Donovan said he supports that — as long as that money is a floor for how much credit unions can loan out, not a ceiling cutting them off from the rest of the funding. Keller is telling his clients to finish their applications in hopes more money will be made available — Wells Fargo issued similar guidance.

For Blomquist, small businesses turning to smaller banks is a good thing for another reason — they’re more likely to do much more follow-up after a loan is issued to make sure those businesses are successful and can pay back their loans.

Leonardo Castañeda is a reporter covering demographics and the income divide as part of The Mercury News’ Living in the Bay Area team. He graduated from San Diego State University with degrees in journalism and economics, and previously reported in America’s Finest City. He also speaks Spanish, holds strong opinions about burritos and can be reached at 408-920-5012.

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